In the basic model of insurance, income is the only input into a person’s utility. This is obviously not realistic. If we relax our assumption that utility is determined only by income levels, can any insurance contract provide full protection against the possibility of becoming severely ill? Give examples of risks associated with becoming sick that are not typically covered by formal health insurance. Can you think of ways that people informally insure against these “uninsurable” risks?
In the basic model of insurance, income is the only input into a person’s utility. This is obviously not realistic. If we relax our assumption that utility is determined only by income levels, can any insurance contract provide full protection against the possibility of becoming severely ill? Give examples of risks associated with becoming sick that are not typically covered by formal health insurance. Can you think of ways that people informally insure against these “uninsurable” risks?
Chapter5: Demand For Health And Medical Care
Section: Chapter Questions
Problem 3QAP
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In the basic model of insurance, income is the only input into a person’s utility. This is obviously not realistic. If we relax our assumption that utility is determined only by income levels, can any insurance contract provide full protection against the possibility of becoming severely ill? Give examples of risks associated with becoming sick that are not typically covered by formal health insurance. Can you think of ways that people informally insure against these “uninsurable” risks?
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